A summary of key deal terms for an investment, usually non-binding except for exclusivity and confidentiality. Covers valuation, dilution, board seats, liquidation preferences, and investor rights.
Why it matters
The term sheet sets the framework for an investment deal. Most terms are negotiable, and what you agree to here affects your cap table, your control, and your payout for years to come. Understanding each clause before you sign is essential because unwinding bad terms later is extremely difficult.
How it works
A term sheet is typically 2-5 pages summarizing the key economic and governance terms of an investment. Key economic terms include valuation, investment amount, liquidation preferences, anti-dilution provisions, and option pool requirements. Key governance terms include board composition, protective provisions (what requires investor approval), and information rights. Term sheets are generally non-binding except for confidentiality and exclusivity (no-shop) clauses. The no-shop clause prevents you from talking to other investors for a set period, typically 30-60 days.
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